Spicy Burrito

Wow! Chipotle Mexican Grill (CMG) is selling faster than the lunch special fajita burrito with black beans and some spicy salsa. The stock has defied any logic and has raced to $55, following higher than expected earnings. Out of curiosity, I set up a simple DCF, using the projected EBITDA and earnings from JP Morgan (who has a neutral rating on the stock at $45 btw). Using a revenue growth rate of 40% for the next ten years, and a TV at 4% (GDP growth), I get a value of $55/share with a 15% discount rate (all equity firm). Although my model is in no way sophisticated, a growth of 40% is tough to come by, especially when you already have $700 million in sales. Meaning that by 2015, the company will generate $14 bn in sales. On top of that, the model uses an EBITDA % of 12, instead of the 10% the business generates now, to account for economies of scale in the long term. Given these numbers, grab a burrito and start shorting.